Real estate investment’s post-crisis high to soften in 2018

By Pranav Sethuraman, JLL's Global Capital Markets team

January 29, 2018

VIETNAM, 29 January 2018 – Investors continued to demonstrate their confidence in global real estate markets throughout 2017, with investment in the final quarter hitting its highest level in three years.

Despite continued political concerns, real estate markets mirrored the global economic recovery with Q4 volumes coming in at US$228 billion, bringing full-year activity to US$698 billion, six percent higher than 2016.

The broad-based growth, low interest rates, and lack of inflationary pressure seen across the world in 2017 have created an ideal environment for investors, says Pranav Sethuraman from JLL's global Capital Markets team.

Even with the planned wind down of asset purchase programs and rising interest rates, strong fundamentals and positive market sentiment have prevented any major dampening in global markets which has, in turn, benefitted the real estate sector, he says.

Although well acknowledged to be in an extended cycle, investor appetite for the sector has remained consistent. And, while yields in many global markets sit at record-lows, healthy cash flow fundamentals have underpinned pricing.

But Sethuraman cautions that we're unlikely to see the same highs in 2018 as a "relative lack of product combined with continued discipline are likely to cause the market to soften by five to 10 percent and finish around US$650 billion."

The changing market conditions will force investors to look to new strategies with a greater focus likely to be placed on "debt financing, M&A, and alternative sectors as the search for yield continues,' he says.

Americas: U.S. continues decline as neighbours shine
Mirroring the previous three quarters, the Americas came in 15% lower in Q4 than the same period in 2016, at just US$66 billion, and bringing full-year activity down 12% to US$249 billion. At the epicenter of the decline was the U.S. which saw full-year volumes fall 16% to US$225 billion, the lowest since 2013. The story was different for the country's northern neighbours with 2017 Canadian volumes up 29% to US$18 billion, 29% higher than the long-run average. Brazil proved itself a further bright spot, outperforming after years of relatively slow activity with full-year volumes up 166% to US$4 billion.

EMEA: UK and Germany lead EMEA high
Investors continue to clamour for European real estate, causing fourth quarter volumes to surge by 31% to US$110 billion. The region has had a strong year with full-year volumes up 22% to US$300 billion, further boosted by the continued weakness of the U.S. dollar which has helped increase volumes in dollar terms. The UK has led the performance, with annual volumes up 37%, despite Brexit uncertainty. A strong final quarter finished off a good year for Germany where full-year volumes finished up 9% higher than 2016 and contributed to the regional strength. Elsewhere, the Netherlands enjoyed a record breaking year with volumes reaching US$21 billion, 44% higher than the previous peak in 2007. The success story continued into Southern Europe with Italy and Spain seeing activity pick up by 17% and 23% respectively in 2017 while Greece and Portugal were up 56% and 66% respectively.

Asia Pacific: Record final quarter for the region
For the second year in a row, Asia Pacific set a record in the final quarter as investment hit US$52 billion, 16% higher than the previous record set in Q4 2016, and bringing full-year volumes 13% up to US$149 billion. China and Japan, the region's two largest markets led the way, with annual activity up 5% and 10% respectively. Strong demand meant Hong Kong finished the year on a record high of US$16 billion, 58% up on last year while Australia (14%) and Singapore (18%) also recorded positive full year growth.

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